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TMI Blog2015 (7) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... sidential apartment, house/building etc, is the same person with whom the developer enters into the initial agreement, executes a registered deed for the sale of a semi-finished structure, and thereafter enters into a finishing agreement for completion of the semi-finished structure into a residential apartment, house, building etc. The artificial severance of the identity of the person who purchases the residential apartment/flat from a developer, firstly as a prospective buyer before execution of a sale deed, and thereafter as the owner of semi-finished structure, does not find support from a plain and literal construction of Section 4(7)(d). Where the literal reading of a fiscal statute produces an intelligible result, clearly there is no ground for reading in words or changing words according to what may be the supposed intention of the legislature. Registered deed executed for the sale of a semi-finished structure, and the finishing/completion agreement entered into thereafter to make the semi-finished structure a fully built residential apartment fit for occupation, are both integrally connected with the initial agreement entered into between the developer and the prospec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplicitly made subject to, the submission urged on behalf of the revenue, that the Form cannot govern the provisions of the Act, does not merit acceptance. Consequently one of the benefits of composition, of not being required to maintain records, would no longer be available. Just like separate records being maintained as aforementioned, the consideration received/receivable for the construction and sale of the apartment would also have to be divided into three distinct parts for it is only the consideration received/receivable from a prospective buyer, for the construction made between the initial agreement and execution of a registered sale deed, which, according to the revenue, would alone fall within the ambit of Section 4(7)(d). The benefit which accrues to the State in prescribing a scheme for composition, i.e., reduction of the burden of tax administration, would also cease, as a result. Such a convoluted construction of Section 4(7)(d) does not merit acceptance. The requirement is for the dealer to be engaged both in construction and sale of the specified buildings. The mere fact that the word selling is used after the word construction does not mean that Section 4( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usion and registration of the sale of the semi-finished structure. The VAT, at the rate prescribed in Section 4(7)(d), must be paid on the entire consideration, and not merely on the consideration reflected in the registered sale deed, to the Sub-Registrar at the time of registration or, in the very same month, along with the tax return, to the assessing authority. The entire tax liability is required to be discharged in the month in which the sale of a semi-finished structure is concluded and registered, and tax should be paid, at that stage itself, for the total consideration received or receivable for the land and buildings which would include the consideration which the developer has not yet received for the post-sale construction to be undertaken by him. The consideration still due, as referred to in the finishing/completion agreement, is the consideration stipulated in the initial agreement minus the consideration already received and reflected in the registered sale deed. It matters little, therefore, whether the right of the purchaser to sue for any defect in construction, post-execution of the sale deed, is referable to the completion agreement or to the initial agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of the sanctioned plans for such group housing schemes. In some cases only plots are initially sold, and in some others semi- constructed structures are also sold along with the plot or the undivided share of land. Approval is obtained from the concerned authorities before commencement of construction, and prior to the sale of land. The petitioners execute a conveyance in favour of the purchaser, either in respect of the plot of land on which a residential house is to be constructed, or the plot of land with the semi-finished structure. Initially an agreement of sale is entered into, by the developer- dealer with the prospective purchasers, with the pre-condition that the purchasers cannot enter into a contract, with any other third party, for construction of a residential apartment, house, building etc. After execution of the sale deed, another agreement is entered into by the petitioner with the purchaser for completion of construction of the residential apartment, buildings etc in accordance with the approved plans and the original document. Every residential house is predesigned, and is a part of the group housing scheme developed by the developer, and the buyer has no sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion agreement; a fresh agreement, for completion of the pending works of the flat, was entered into either with, or after, execution of the sale deed; the construction agreement, entered into after registration of the semi- finished apartment in the name of the customer, is a fresh works contract for which the contractor is required to pay tax at the rates applicable on the value of the goods at the time of incorporation, or under the composition scheme by filing Form VAT 250 before the assessing authority; as the dealer had failed to submit Form-VAT 250 opting to pay tax under Section 4(7)(b), and they had not submitted the details to arrive at the value of the goods at the time of incorporation, tax had been rightly proposed under the proviso to Section 4(7)(a) read with Rule 17(1)(g); in the light of the decision of the advance ruling authority in M/s. Madhu Collections, the transactions relating to incorporation of goods in the works, in the course of execution of a works contract subsequent to registration of the immovable property ie apartments, residential complexes etc., is taxable under Section 4(7)(a) or Section 4(7)(b) of the Act, depending on whether the contractor had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to the present facts scenario; it is not even the case of the assessing authority that they were revoked or cancelled; as long as the said advance rulings subsist, they are bound to be followed by the department in view of Section 67(4) of the Act; the assessing authorities have mis- conducted themselves in not following these rulings, and in not even referring to them; the Advance Rulings, in M/s Madhu Collections, Hyderabad and M/s Lumbini Constructions (P) Ltd., have no application, and are not consistent with the provisions of the Act; and these rulings were passed without reference to the earlier Advance Rulings in M/s Maytas Hill Country Pvt. Ltd., M/s Manjeera Constructions Limited, M/s Sri Sai Builders, M/s My Home etc., which are in favour of the assessee-dealers. Sri K. Vivek Reddy, Learned Counsel for the respondents, would fairly state that, as there are conflicting Advance Rulings on this issue, this Court should give a quietus to this vexed issue on interpreting the provisions of Section 4(7)(d) of the Act and the Rules made thereunder. Section 67 of the Act relates to clarification and advance rulings. Sub-section (1) thereof enables the Commissioner to co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lings necessitate examination of all questions of law touching upon the scope and application of Section 4(7)(d) and the Rules made thereunder. II. IS THE POST-SALE COMPLETION/FINISHING WORKS CONTRACT ELIGIBLE FOR COMPOSITION UNDER SECTION 4(7)(d) OF THE AP VAT ACT? It is contended, on behalf of the petitioners, that Section 4(7)(d) of the Act does not even remotely suggest that on the sale of a semi- finished flat, with a specific condition that the construction would be completed by the very same contractor under a completion agreement, the composition facility ceases; the sale deed and the completion agreement are integral parts of the initial-parent agreement; the petitioners have discharged the entire tax liability (even on the completion agreement) immediately upon registration of the semi-finished flat; both the sale deed and the construction agreement are registered on the same date; the petitioners cannot be denied the composition facility for that part of the turnover of the works contract executed subsequent to the registration of the sale deed; Section 4(7)(d) does not speak of any particular type of agreement; it takes within its ambit all genre of contracts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble only if the works contract contemplates construction followed by sale of the constructed work; the assessee has to strictly satisfy the requirements of Section 4(7)(d) for availing composition; and the petitioners are entitled to composition if, and only if, they fall within the four corners of the Act. Before examining these and the other submissions, it is useful to note the provisions of the Act, and the Rules made thereunder, mainly in relation to works contracts. Section 2(16) of the Act defines goods to mean all kinds of movable property other than newspapers, actionable claims, stocks, shares and securities, and includes all materials, articles and commodities including the goods, as goods or in some other form, involved in the execution of a works contract or those goods used or to be used in the construction, fitting out, improvement or repair of movable or immovable property, and also includes all growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. Section 2(45) defines works contract to include any agreement for carrying out, for cash or for deferred payment or for any ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-rules (2) and (4), the VAT dealer is required to pay tax on the value of the goods, at the time the goods are incorporated in the work, at the rates applicable to the goods. Rule 17(1)(b) provides that such a VAT dealer shall be eligible to claim input-tax credit on 75% of the tax paid on the goods purchased, other than those specified in Rule 20(2), and he is eligible to issue a tax invoice. Rule 17(1)(d) provides that the value of the goods, declared by the contractor, to have been used in the execution of a works contract, shall not be less than the purchase value, and shall include seigniorage charges etc. Rule 17(1)(e) provides that, subject to clause (d) of Rule 17(1), the following amounts are allowed as deductions, from the total consideration received or receivable, for arriving at the value of the goods at the time of incorporation (i) labour charges for execution of the works; (ii) charges for planning, designing and architects fees; (iii) charges for obtaining on hire, or otherwise, machinery and tools used for the execution of the works contract; (iv) cost of consumables such as water, electricity, fuel, etc., used in the execution of the works contract, the proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e standard deduction), is alone required to be taken into consideration, in determining the tax liability of the dealer, it is evident that tax, under Section 4(7)(a) and its proviso, is not levied on the consideration received for the land component, or on the labour and service component, of the works contract. Two distinct schemes of compositions are provided under clauses (b) and (d) of Section 4(7). A scheme of composition, essentially, seeks to provide an option under which, in lieu of the tax payable under the provisions of the Act, a registered dealer can pay, what is described as the composition amount, in the discharge of his tax liability. In framing a scheme for composition the legislature has to balance numerous considerations including the interest of the revenue, the need to encourage compliance, and the burden on tax administration which is obviated by the introduction of a composition option. The composition scheme is not in the nature of an amnesty, but is a provision made by the legislature for composition by a registered dealer undertaking works contracts. The tax payable, as prescribed in the composition scheme, is in lieu of the tax payable on the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... %/5% of the total amount received or receivable by him towards execution of the works contract subject to such conditions as may be prescribed. Unlike Section 4(7)(a), which provides for levy of tax only on the value of goods at the time of its incorporation in the works executed by the dealer, Section 4(7)(b) requires the dealer, who has exercised the option to pay tax by way of composition, to pay tax at 4%/5% of the total amount received or receivable by him towards execution of the works contract. Rule 17(2) of the VAT Rules relates to treatment of works contracts under composition. Rule 17(2)(a) stipulates that any VAT dealer, who executes a contract and opts to pay tax as specified in Section 4(7)(b), must register himself as a VAT dealer. Rule 17(2)(b) requires such a VAT dealer to pay tax at 4%/5% of the total consideration received or receivable. Rule 17(2)(c) requires the VAT dealer, who opts for composition, to notify the prescribed authority on Form VAT 250, before commencing execution of the work, the details including the value of the contract on which the option has been exercised. Under the proviso thereto, a consolidated Form VAT 250 can also be filed by the contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract for constructing and selling the specified buildings, is required to register himself as a dealer (Rule 17(4)(a)); (ix) the dealer is then required to notify the prescribed authority in Form VAT 250, before commencement of execution of the work, of his intention to avail composition for all the works, relating to the construction and sale of the specified buildings, undertaken by him. (Rule 17(4)(b)). Form VAT 250 is the application to be submitted by the dealer opting for payment of tax by way of composition. The said Form requires the name and address of the dealer to be furnished; for the dealer to state that they were applying to pay by way of composition, contract wise or for a period as the case may be; and to furnish details of contract for which composition was opted. The Form requires the details to be given in a tabular form containing the following particulars viz., (1) serial number; (2) nature of option (Contract wise or for a period); (3) name address of the other party in the case of option contract-wise; (4) nature of the contract/transaction; (5) date of contract/period of option; and (6) full value of the contract/transaction. The note, given below the tab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution of the sale deed, is the construction made for a prospective buyer; (3) any construction made by the developer, after execution of the sale deed, is a construction undertaken by him for the owner of the building; and, (4) while construction undertaken by the developer for a prospective buyer (with whom an agreement for construction and sale of the apartment is entered into) falls within the ambit of Section 4(7)(d), the construction made after a sale deed is executed does not. A residential apartment/commercial complex, or a group housing scheme, consists of several units (ie flats or individual houses/villas/shops). Rule 17(4)(b) requires the dealer to exercise the option for composition, under Section 4(7)(d) of the Act, before commencement of construction. At that stage the developer may have entered into agreements with prospective buyers of some of, and not all, the flats/units. The developer would, ordinarily, still proceed with construction as he could identify and enter into agreements with prospective buyers, of the remaining units/flats, later. In such an event would the construction, made prior to any agreement being entered into with a prospective buyer, fall outs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted to tax on the execution of a works contract partly under one and partly under another clause of Section 4(7). Classification of dealers executing works contracts, under clauses (b) and (d) of Section 4(7), is based on the nature of business the dealer is engaged in, and does not change merely because a conveyance deed is executed and registered for the sale of a semi-finished structure. As long as it is the same contractor who executes the works for the same purchaser, from commencement till completion, the option available to him, to pay tax under clauses (b) and (d) of Section 4(7), would depend on the class and category of contractors to which he belongs, and the nature of the business he is engaged in, and not on the stage of construction when a conveyance deed is executed. (i) IS THE POST-SALE WORKS CONTRACT DISTINCT AND DIFFERENT FROM THE WORKS CONTRACT EXECUTED PRIOR TO EXECUTION OF THE SALE DEED? It is contended, on behalf of the petitioners, that the dealer, who opts for composition under Section 4(7)(d), is required to pay tax on the entire value of the consideration received or receivable, whichever is higher; this includes the cost of the land (either divided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... himself. Further, in the first works contract, the assessee is executing the works contract in his capacity as the owner / developer. In the second works contract, the asseesee executes the works merely as a contractor. Even though the parties may be the same, the capacity under which they undertake the contract changes completely after the execution of the Sale Deed; in K. Raheja Development Corporation1 the Supreme Court held that any construction activity, for the prospective purchaser prior to the sale, amounts to a works contract; and in Iravanshi Builders Developers v. CCT, Uttarakhand (2014) 25 STJ 474 (Uttra) the Division Bench of the Uttarakhand High Court held that the construction, preceding the sale of immoveable property, constitutes a works contract. Where the owner of land purchases goods (construction material such as cement, steel, bricks etc) and constructs a building himself engaging labour, the value of the goods purchased by him includes the VAT charged by the dealer who sold the goods to him. As he is constructing the building for himself, the only contract which the owner of the land enters into with another is a contract for labour and services and, as he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstructs the building, for the flat purchaser, for monetary consideration. The label of payment is not decisive but the factum of the payment is. The construction is undertaken on payment of the price agreed upon between the developer and the flat purchaser. The construction work is undertaken by the developer not for himself or the owner but is carried for, and on behalf of, the purchaser. Such a transaction is a composite contract comprising of both a works contract and transfer of immovable property. Value added tax is levied on the value of the material involved in the execution of the works contract. (Larsen Toubro Ltd.2). Where a contract comprises of both a works contract and a transfer of immovable property, such a contract does not denude it of its character as a works contract. The term works contract, in Article 366(29-A)(b), takes within its fold all genre of works contracts. (Larsen Toubro Ltd.). Pursuant to the development agreement, a plan is sanctioned in the name of the owner of the property who would then execute a conveyance directly to the purchaser. The developer has a possessory interest, and a right to construct which does not make him the owner of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sense, requiring the fulfilment of all the conditions that it joins together, and it is the antithesis of or . (Ishwar Singh Bindra v. State of UP AIR 1968 SC 1450; Stroud's Judicial Dictionary, 3rd Ed. Page 135). Maxwell on Interpretation of Statutes, 11th Ed.). By the use of conjunctive word and, between construction and selling, Section 4(7)(d) restricts the benefit of composition only to those dealers who are engaged both in the construction and in the sale of residential apartments, houses, buildings, commercial complexes etc, and not merely to those engaged only in construction, and not in the sale, of such buildings or vice-versa. (M/s.Mark Infrastructure Pvt. Ltd.). Those dealers who are engaged only in construction, and not also in sale, of buildings, are not entitled to claim the benefit of composition under Section 4(7)(d), and are liable to pay tax either under Section 4(7)(a) or opt for composition under Section 4(7)(b) of the Act. A person carrying on business only in the sale of fully constructed residential apartments/houses etc, which is immovable property (and does not constitute goods under Section 2(16)), cannot be subjected to tax under the Act as he wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and thereafter enters into a finishing agreement for completion of the semi-finished structure into a residential apartment, house, building etc. The artificial severance of the identity of the person who purchases the residential apartment/flat from a developer, firstly as a prospective buyer before execution of a sale deed, and thereafter as the owner of semi-finished structure, does not find support from a plain and literal construction of Section 4(7)(d). Where the literal reading of a fiscal statute produces an intelligible result, clearly there is no ground for reading in words or changing words according to what may be the supposed intention of the legislature. (R. v. Oakes). It is wholly impermissible, while construing any provision much less a taxing provision, to read into the Section more words than it contains. (CIT v. Vadilal Lallubhai). When one is construing a penal statute, the first thing is to construe it according to the ordinary rules of grammar, and if a construction which satisfies those rules makes the enactment intelligible, and especially if it carries out the obvious intention of the legislature as gathered from a general perusal of the whole statute, tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual obligation to complete construction of the flats/houses, in terms of the initial agreement, and were required to hand over possession only after obtaining occupancy certificate from the respective Municipality/ Municipal Corporation in terms of the Building Regulations; they hand over possession only after obtaining an occupancy certificate from the respective municipality/municipal corporation in terms of the Building Regulations; the petitioners, who have opted to pay tax under Section 4 (7) (d) on the entire value mentioned in the initial agreement, which includes the cost of land, construction and other amenities, are liable to pay tax only at 4%/5% on 25% of the turnover covered by the completion/finishing agreement; and levy of tax at 12.5%/14.5% under Section 4(7)(a), or at 4%/5% under Section 4 (7)(b), treating the finishing works as independent works contracts, is not only without jurisdiction, but is also contrary to the scheme of the Act and the Rules made thereunder. On the other hand Sri K.Vivek Reddy, Learned Counsel for the respondent, would emphasise on the absence of sale in the finishing agreement. Learned Counsel would submit that, under Section 4(7)(d) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imed non -liability to tax, on the additional financial compensation received for compression of the erection period, contending that it was not part of the consideration received towards the works contract. The assessing authority accepted their claim. The revisional authority, however, revised the assessment order on the ground that the payment received by the assessee, for compression of the erection period, was also payment received for execution of the works contract for erection of radial crest gates; and, therefore, the said payment could not have been left out of the tax net. The revisional authority ordered that the left out consideration should also be brought to tax. On the order of the revisional authority being subjected to challenge , the Division Bench of the Karnataka High Court held:- ..If the second contract is viewed as an independent contract, it is a contract for obtaining two numbers of high powered cranes and additional equipments, there is no sale of goods. It is purely a labour contract. But the contract between the parties is not to provide labour. The first contract where he undertook to execute the work is to be considered. In other words, the second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be regarded as legislative interpretations of the prior ones. (Hariprasad Shivshanker Shukla v. A.D. Divelkar). In construing a statute the Court may, with propriety, refer to the history of the times when it was passed. (Hariprasad Shivshanker Shukla16; Great Northern Railway Co. v. United States of America). It is a settled canon of construction that the meaning of words and terms used in a statute can be properly explained only by reference to the circumstances existing at the time when the statute was enacted. (Auckland Jute Co. v. Tulsi Chandra; Maxwell on Interpretation of Statues, p.23 (9th Edn.). The A.P. Revised Common Building Rules were made, in exercise of the power conferred under Section 585 of the Hyderabad Municipal Corporations Act, 1955; Section 18 of the Andhra Pradesh Municipal Corporations Act, 1994; and Section 58 of the Andhra Pradesh Urban Areas (Development) Act, 1975, by the Government of Andhra Pradesh. Rule 21 relates to occupancy certificate and, under sub-rule (i) thereof, an occupancy certificate is mandatory for all buildings. No person shall occupy or allow any other person to occupy any building or part of a building for any purpose unless such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction which would make the provisions more effective and workable must be adopted, if possible without doing too much violence to the language used. An intention to produce an unreasonable result is not to be imputed to a statute. (Artemiou v. Procopiou ; Francis Bennion Statutory Interpretation). The pre-requisite, for being extended the benefit of composition under Section 4(7)(d), is for an application to be submitted in Form VAT 250 before commencement of construction. Section 4(7)(d) makes the benefit of composition thereunder subject to such conditions as may be prescribed. Section 2(24) of the Act defines prescribed to mean prescribed by Rules made under the Act. Rule 17(4)(b) of the Rules requires the dealer, exercising option under Section 4(7)(d), to notify the prescribed authority, on Form VAT 250, of his intention to avail composition for all works specified in Rule 17(4)(a). The requirement of notifying the authority in Form VAT 250 is stipulated in Rule 17(4)(b), to which the option under Section 4(7)(d) is subject to. Form VAT 250 requires, among others, the value of the contract to be mentioned therein. The value of the contract is the consideration reflected in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompleted flat/house to the prospective buyers in terms of the initial agreement, is not fatal; the assessing authorities have erred in holding that the liability of the dealers to pay VAT is on the transfer of property by way of a registered sale deed, ignoring the fact that the liability of the dealers is not dependent on the sale deed; dealers, engaged in construction and sale of residential apartments, houses, buildings or commercial complexes, can avail themselves of the facility of composition as long as they are willing to pay tax on the composite value of land and building, or the market value fixed therefor, whichever is higher; undisputedly the agreed consideration is more than the market value fixed for the purpose of stamp duty; and it represents the composite value of land and buildings. On the other hand Sri K.Vivek Reddy, Learned Counsel for the respondent, would submit that construction must precede sale; on a plain and natural reading, Section 4(7)(d) permits composition only with respect to an activity which requires the dealer to construct and sell; the subject matter of sale has to be the constructed work; the dealer should have engaged himself in the activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per for the purchase of the apartment/building proposed to be constructed (otherwise called the prospective buyer) is the same person in whose favour a registered sale deed is executed for conveyance of a semi-finished structure, and is also the very same person with whom the completion/finishing agreement is entered into by the developer thereafter. As the option for composition under Section 4(7)(d) can be exercised only by those dealers who construct and sell residential apartments, houses, commercial complexes, buildings, and not semi-finished structures, the option can neither be curtailed only till the stage of execution and registration of a sale deed, nor can the construction made subsequent thereto be excluded from its ambit. Accepting this erroneous interpretation, sought to be placed on Section 4(7)(d) by the Revenue, would enable a dealer to justifiably claim that he is not liable to pay tax under the Act for the construction made by him prior to his having entered into the initial agreement with the prospective buyer. The liability to pay tax under Section 4(7)(d), read with Rule 17(4)(d), is on the total consideration received or receivable towards the value of lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prospective buyers of semi-finished flats / villas, the benefit of composition under Section 4(7)(d) would be available only for the value shown in the sale deed, and the balance amount received or receivable thereafter, for completion of the semi-finished construction, is taxable either under Section 4(7)(a) or under Section 4(7)(b) is not tenable; the composition scheme under Section 4(7)(d) is applicable for the entire consideration based on the initial or parent agreement; the option of composition was exercised by the petitioners before commencement of the work, and the initial or parent agreement included the entire cost of land, the semi finished flat / villa together with the value covered under the completion / finishing agreement; the petitioners are not entitled to the benefit of composition under Section 4(7)(d) to the extent the works executed by them are not covered by the initial or parent agreement; the petitioners have executed sale deeds in favour of prospective buyers merely for operational convenience, i.e., to enable the purchasers to obtain bank loans, etc; they are under a contractual obligation to complete construction of the flats/villas in terms of the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing agreement, and not to the agreement to sell, because the liability to execute the finishing work, and the consideration for the said work, is stipulated in the finishing agreement; any amount received by the assessee-contractor for the finishing agreement, prior to execution of the said agreement, is only a case of past consideration; the finishing agreement does not also make any reference to the agreement to sell; and the petitioners have to strictly satisfy the terms of composition as set out in Section 4(7)(d) and Rule 17(4). The agreements entered into between the petitioner in W.P. No.30173 of 2014, and Sri P. Narasareddy (who purchased a flat from them), can be taken as illustrative of the agreements entered into between the developers (petitioners in this batch of Writ Petitions) and the purchasers of the apartments/villas constructed by them. The initial agreement of sale dated 27.10.2009, entered into by the petitioner with the purchaser, contained details of the sale price in clause (1) thereof. Clause 1.1 of the said agreement required the vendor to sell, and the purchaser to purchase, schedule B and C properties for the consideration stipulated in Schedule G inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), i.e., the initial agreement dated 24.10.2013 entered into between the owner of the land and the petitioner (developer) on the one hand, and the vendee on the other, records the total sale consideration payable, for the flat proposed to be sold, as ₹ 23,06,000/-. The registered sale deed dated 27.01.2014, executed thereafter for the sale of a semi-finished flat, records the sale consideration as ₹ 22,56,000/- and the agreement for completion of the semi- finished flat, also dated 27.01.2014, records the consideration payable as ₹ 50,000/-. It is evident, therefore, that the consideration referred to in the registered sale deed dated 27.01.2014 for ₹ 22,56,000/-, plus the consideration referred to in the agreement for completion of the semi-finished flat also dated 27.01.2014 for ₹ 50,000/-, equals the consideration, referred to in the initial agreement of sale dated 24.10.2013, ie for ₹ 23,06,000/-. Section 20 of the Act relates to Returns and Assessments and thereunder every dealer, registered under Section 17 of the Act, shall submit such return or returns, along with proof of payment of tax, in such manner, within such time, and to such auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration not yet received, it is evident that the liability to pay tax, on composition under Section 4(7)(d), is also on the consideration receivable on the construction to be continued and completed, in terms of the initial agreement, after conclusion and registration of the sale of the semi-finished structure. The tax liability of a dealer, under Section 4(7)(d), is on the consideration stipulated in the initial agreement for the composite value of the land and the building, and this liability is to be discharged in the month in which the sale deed is executed and registered, even if it be for a semi-finished structure. The dealer is liable to pay tax either before the sub-registrar when the sale deed is executed or along with the monthly return, before the assessing authority, in the month in which the sale deed is executed and registered. The taxable turnover, for levy of tax under Section 4(7)(d), is, ordinarily, the consideration stipulated in the initial agreement. If the consideration reflected in the initial agreement is lesser than the market value of both land and buildings, as fixed for the purpose of stamp duty, the taxable turnover would be the market value of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipulated in the initial agreement minus the consideration already received and reflected in the registered sale deed. It matters little, therefore, whether the right of the purchaser to sue for any defect in construction, post-execution of the sale deed, is referable to the completion agreement or to the initial agreement. Any construction made beyond the scope of the initial agreement would, however, be an independent works contract not falling within the ambit of Section 4(7)(d) of the Act. Learned counsel, appearing on behalf of the petitioners, would fairly state that the works executed beyond or independent of the initial agreement, entered into by the developer with the prospective buyer, would not fall within the ambit of Section 4(7)(d) of the Act; and, on such works contracts, the dealer would be liable to pay tax under Section 4(7)(a) of the Act and its proviso. III. DISTINCTION MADE, UNDER THE APGST ACT, BETWEEN THE COMPOSITION SCHEME FOR GENERAL WORKS CONTRACTS, AND WORKS CONTRACTS OF CONSTRUCTION OF APARTMENTS AND RESIDENTIAL BUILDINGS: It is contended, on behalf of the petitioners, that the National Housing and Habitat Policy, 1998 requires the Central and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax and, under sub-section (1) thereof, subject to such conditions and, in such circumstances as may be prescribed, if a dealer who executes any works contract so opts, the assessing authority of the area may accept, in lieu of the amount of tax payable by him under the Act during the year, by way of composition, an amount at the rate of 4% of the total amount paid or payable to the dealer towards execution of the works contracts. Under the second proviso thereto if a dealer, who executes a works contract of construction of apartments or buildings so opts, the assessing authority of the area may accept, by way of composition, an amount calculated at the rate of ₹ 4/- (Rupees four only) per square foot of the constructed area. While the benefit of composition, under Section 5-G(1) of the APGST Act, was available to a dealer executing any works contract, the benefit of composition under the second proviso thereto was confined only to dealers who executed works contracts of construction of apartments or residential buildings. The liability of a dealer executing works contracts, having exercised the option under Section 5-G(1), was to pay tax at 4% of the total consideration. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuting works contracts of residential apartments and buildings, and not to make the benefit contingent on the stage of construction when a registered sale deed is executed for the conveyance of a semi-finished structure. IV. CONCLUSION: If dealers engaged in the construction and sale of residential apartments, houses, buildings or commercial complexes exercise the option, and comply with the conditions stipulated in Section 4(7)(d) and Rule 17(4), they cannot be denied the benefit of composition thereunder for the construction made by them, for the very same person, after execution of a registered deed for the sale of a semi- finished structure. Denial of the benefits of the composition scheme under Section 4(7)(d) to such dealers, for the post-sale construction made in terms of the initial agreement, is illegal and is contrary to the provisions of the AP VAT Act and the Rules made thereunder. The impugned assessment orders must therefore be, and are accordingly, set aside. The assessing authorities shall, in the light of what has been held hereinabove, re-examine the matter and, after giving the petitioners a reasonable opportunity of being heard, pass orders afresh in accor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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